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The Medium Run Effects of Educational Expansion: Evidence from a Large School Construction Program in Indonesia

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Esther Duflo

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Abstract

This paper studies the medium run consequences of an increase in the rate of accumulation of human capital in a developing country. From 1974 to 1978, the Indonesian government built over 61,000 primary schools. The school construction program led to an increase in education among individuals who were young enough to attend primary school after 1974, but not among the older cohorts. 2SLS estimates suggest that an increase of 10 percentage points in the proportion of primary school graduates in the labor force reduced the wages of the older cohorts by 3.8% to 10% and increased their formal labor force participation by 4% to 7%. I propose a two-sector model as a framework to interpret these findings. The results suggest that physical capital did not adjust to the faster increase in human capital.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8710.

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Date of creation: Jan 2002
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Handle: RePEc:nbr:nberwo:8710

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O1 - Economic Development, Technological Change, and Growth - - Economic Development
O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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  1. Richard B. Freeman, 2006. "Learning from Other Economies: The Unique Institutional and Policy Experiments Down Under," NBER Working Papers 12116, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. John C. Bluedorn & Elizabeth U. Cascio, 2005. "Education and Intergenerational Mobility: Evidence from a Natural Experiment in Purerto Rico," Economics Papers 2005-W21, Economics Group, Nuffield College, University of Oxford. [Downloadable!]
  3. Dabla-Norris, Era & Matoovu, John M. & Wade, Paul, 2002. "Debt Relief, Demand for Eduction, and Poverty," Working Papers UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
  4. Orazem, Peter & King, Elizabeth M, 2007. "Schooling in Developing Countries: The Roles of Supply, Demand and Government Policy," Staff General Research Papers 12838, Iowa State University, Department of Economics. [Downloadable!]
    Other versions:
  5. Lee, Chanyoung & Orazem, Peter, 2008. "Lifetime Health Consequences of Child Labor in Brazil," Staff General Research Papers 12933, Iowa State University, Department of Economics. [Downloadable!]
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